Timor-Leste Petroleum Fund's future
May 2008 -
Timor-Leste's Petroleum Fund, after much public discussion, began operating in 2005. By March 2008, it had accumulated $2,629,962,998, which was deposited in the Federal Reserve Bank of the United States.
The Petroleum Fund Act specifies how the Fund should be invested, and how much money can be withdrawn in any given year.
The new Government elected in 2007 began a discussion about loosening some of these restrictions. Their initial principles are outlined in the 2008 Budget, with some further discussion in the article below.
By Russell Searancke, Upstream May 1, 2008
Oil and gas fund dominates Gusmao budget in battle to tackle poverty
East Timor Prime Minister Xanana Gusmao's budget speech last month highlighted the impoverished country's total reliance on taxation revenue from the Bayu-Undan gas and condensate field.
Gusmao estimates that East Timor's 2008 income will be $1.38 billion, of which all except $27 million will come from petroleum revenues.
Its oil and gas revenues are paid into a petroleum fund based on the Norwegian model, and only a small percentage is available to cover budget deficits.
This year, East Timor's fiscal deficit is estimated at $321.1 million, of which $294 million will be covered through withdrawals from the fund.
The remainder will come from the state treasury account, says Gusmao.
The fund was set up in August 2005 and, according to government reports, had a balance of $2 billion at the end of 2007.
It is estimated to reach $3.1 billion by December 2008, rising to $5.8 billion by December 2011.
Gusmao says the level of drawdown from the fund "has caused much controversy in public opinion and especially among some members of parliament".
"I would like to clarify the government will not be withdrawing from the petroleum fund any amount that exceeds the estimated sustainable income for the next fiscal year," says Gusmao.
He adds that the $294 million drawdown this year will be used on infrastructure, health, education, training and rural development.
These are "areas without which it would be impossible to combat generalised poverty".
There are no changes envisaged to the drawdown ideology, but Gusmao is looking at possible amendments to the workings of the fund, particularly with poverty being "a reality in the country, where about 41% of the population lives below the poverty threshold, on 55 cents a day".
"This government is aware that the petroleum fund should contribute to a sensible management of oil resources but believes we can manage it with greater efficiency still," says Gusmao.
"The petroleum fund is steadily increasing and there is potential to have a greater increase in the return of the investments," he says.
"Therefore we are considering the current investment strategy and the management of the fund so as to maximise the total value of the revenue from the petroleum sector."
The East Timorese government intends to start a revision process this year of the Petroleum Fund Law.
"Let us not turn the petroleum fund into a political banner," says Gusmao.
"The natural resources belong to the people and must be used fairly and according to the good of the nation."
The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)